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Thursday, March 01, 2007

Bellringer fails to bridge Selinger's credibility gap

You don't need a bloodhound to tell you that something stinks at the Legislature.

And that awful smell is coming straight from the office of Greg Selinger, Minister of Finance.

Greg Selinger is beginning to look like a Laddie Macbeth walking the halls and trying to get the stain of Crocus off his hands.

We now know why the NDP government has been fighting harder than the Russians at Stalingrad against any idea of a judicial inquiry the Crocus scandal. Orange jumpsuits may be party colours but they are so unappealing.

The Selinger Memo, a leaked cabinet document, has proved that the NDP knew in November, 2000, that Crocus was a shaky investment that was about to become a pyramid scheme. Was the Attorney General, Huff 'n Puff Gord Macintosh, in the cabinet room when this document was circulated? Wasn't he sworn to protect people from this sort of thing?

It's obvious now why the NDP propped up the Crocus Fund so aggressively. They changed laws (the cooling-off period), tweaked regulations (how to fudge the 10% limit for a single investment), and turned a blind eye to rule-bending where necessary (annual selling limits).

When the Conservatives raised questions about the valuations of Crocus investments in 2002, Crocus sent its goon squad to make them shut up. The NDP laughed themselves sick. But they knew the critiques were valid---and did nothing.

The fortuitous disclosure of the Selinger Memo can be compared in scandal-speak to the revelation of the Nixon tapes.

Carol Bellringer's eleventh-hour discovery of the cabinet memo in the Auditor General's Crocus files is not in the same league as Mary Jane Woods' erasure of 18 minutes of prime conspiracy chat; but the effect is identical. It raises more questions than it answers.

  • Why does former auditor general Jon Singleton not remember such a bombshell?
  • Did he even see the memo? Or was it intercepted by some staffer who then "summarized" it for Singleton?
  • How could such a huge red flag not be cited in the final report when Singleton criticized the government for missing so many red flags?
  • Why wasn't it the very first item in any timeline in the report?
  • Is this the only cabinet document provided to the Auditor General?
  • Were there restrictions on citing or referring to cabinet documents?
  • Was this the only time the problems with the Crocus Fund were discussed in cabinet in the four years between 2000 and 2004 when Crocus went into receivership?
Any student of government scandals knows the principal lesson is that it's not the crime that gets you convicted, it's the cover-up.

Selinger and Premier Gary Doer were in full cover-up mode yesterday, sticking closely to the party line: it's old news, everyone knew, we didn't do anything anyway, and it's Gary Filmon's fault. Oh, and the Conservatives will sell Hydro.

But Selinger decided something more was needed.

So he lied.

"It's very clear in the document we did say in the Legislature - the Minister of Industry said - everybody was aware of the liquidity - the potential liquidity problem. And by the way, the liquidity problem never came to pass."

Say what?

The "liquidity problem" is an obvious reference to the many warnings contained in Selinger's own memo to cabinet.

Let us quote just a few:
· Crocus recently requested two very significant changes that would allow it to raise more money from Manitobans and induce investors to keep their money invested for a longer period of time. These changes are thought by Crocus to be necessary to deal with a potential liquidity problem that could arise over the next few years.
· The possibility of liquidity problems is very real, but the two requested changes may only push the problems further into the future when they could be even larger.
· In effect, Crocus is requesting the ability to use money from new investors to payoff earlier investors who want to redeem, rather than using profits earned on the investment portfolio.

Maybe Selinger was banking that none of the reporters had read the Auditor's Report on Crocus.

Or at least that none of them remembered this section:

4.3.3 Liquidity, Cash Flow, and the Solidarity Transaction

You know, that part where Singleton discussed the liquidity problem which arrived in 2003, larger than ever, just as predicted.

Where the Crocus Fund borrowed $10 million from the Quebec Solidarity Fund and disguised the loan as an "investment" to mislead Manitobans.

Here's a small sampling of how Singleton explained the liquidity problem:

The Liquidity Situation that Prompted the Solidarity Transaction

· In order to prevent a shortfall in its minimum reserve requirements, the Fund negotiated a short term institutional investment of $10 million from the Fonds de Solidarite (Solidarity), a Quebec-based LSIF.
· In early July 2002, the former Chair of CIF approached Solidarity to indicate that CIF would be interested in negotiating the terms of a short-term investment by Solidarity to CIF.

As part of the request, the former CEO commented that 'we presently face a short term liquidity challenge'...

The former CEO (Sherman Kreiner) further noted that there had been extensive discussions at the Executive and Personnel Committee and the Board regarding CIF's liquidity challenges and that they were committed to addressing this problem as their highest priority.

The Auditor General's report said that in December, 2002, "prior to the 2003 RRSP selling season", the former CEO (Sherman Kreiner) and former CIO (James Umlah) of Crocus made misleading public statements about the loan, implying that the financial strength of Crocus was attracting institional investors.

"The Fund misled investors in a significant way by failing to properly disclose and publicly communicate the essence of the Solidarity transaction... The 'spin' provided by the press releases and the comments made by the former CEO and former CIO to shareholders regarding the investment from Solidarity helped to conceal the liquidity challenges confronting the Fund."

You know, the liquidity challenges "that never came to pass", according to Greg Selinger.

As a result of the disguised loan:

· The audited September 30, 2003 financial statements significantly misrepresented the fundamental characteristics of the investment from Solidarity
· The transaction was misrepresented in the prospectuses
· This also means that MER was understated. (In other words, the management expense ration, the fee charged to investors to run the fund, was larger than Crocus said it was.)

The NDP had been warned that Crocus was running short on money two years earlier.
They recognized the scam Crocus was pulling on potential investors and-- did nothing.

As we said, Selinger must have counted on the fact he could say anything at all and the mainstream media would simply parrot his words without examining the facts.

A particularly galling case in point is CBC Manitoba.
They posted this Wednesday morning:

Letter proves Crocus document wasn't withheld: minister
Last Updated: Wednesday, February 28, 2007 8:54 AM CT
CBC News

Manitoba Finance Minister Greg Selinger says the opposition parties have it wrong and he has proof that the former auditor general did have access to a controversial cabinet document during his review of the collapsed Crocus Fund.

The leaked cabinet document, written by Selinger in 2000, discusses changes Crocus wanted to make in the face of looming "liquidity problems" and raises concerns about the fund's ability to pay investors who wanted to redeem their shares over the next few years.

Selinger insists his government's actions in 2000 - he refused to allow Crocus to make the changes it sought - saved taxpayers millions in potential losses through the fund.

For the record, the Selinger Memo says the Crocus Fund wanted two things: changes to the annual selling limit and to the "cooling-off" period for Labour-Sponsored Investment Funds ( ).

The NDP turned a blind eye to the Crocus Fund's breach of the annual selling limit in the 2001 RRSP season and the government scrapped the cooling-off period in the summer of 2001.

The CBC got it 100 percent wrong.

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